On Saturday, 28 February 2026, the United States and Israel launched joint airstrikes on Iran, killing Supreme Leader Ali Khamenei and striking more than 200 military targets within the first 24 hours. Within hours of the opening bell on Monday (March 2), global financial markets were in turmoil.
Oil prices surged more than 10% over two days. The VIX, Wall Street’s fear gauge, hit a three-month high. Bond markets flipped the script on the usual safe-haven playbook.
And Australian investors watched the ASX 200 slide, dragged down by a cocktail of energy fears, inflation anxiety, and the spectre of a widening regional war.
This is what has happened across global markets, what the data tells us, and what investors need to watch closely in the weeks ahead.
Figure 1: US–Israel strikes on Iran killed Ali Khamenei, triggering global market turmoil as oil surged, VIX spiked, and the ASX 200 fell.
The Spark: A Strike That Changed the Calculus
The US-Israeli operation, codenamed Operation Epic Fury, targeted Iranian military infrastructure, ballistic missile capabilities, and leadership compounds.
Iran retaliated almost immediately, striking US bases across the Gulf and launching missile and drone attacks on Israel. Kuwait accidentally downed three US fighter jets. Dubai International Airport, one of the world’s busiest, ground to a halt.
Iran declared the Strait of Hormuz shut, warning any vessel passing through would become a target. That single move, threatening roughly 20% of the world’s daily oil supply, set off the commodity shockwave that markets are still processing.
Brent crude jumped from around $70 per barrel before the strikes to over $85 by Thursday 5 March. WTI crude topped $81.
Analysts at J.P. Morgan warned that a prolonged closure of the Strait could push Brent toward $100 to $140 per barrel, a level not seen since the post-COVID supply squeeze.
How the ASX Reacted
Australia’s S&P/ASX 200 felt the tremors quickly, though the falls here were more measured than the carnage seen in North Asia. The index dropped approximately 1.4% on Tuesday 3 March, and slipped a further 0.48% on Thursday as oil prices resumed their climb.
A partial recovery emerged on 6 March, with the ASX 200 gaining 0.44% to close at 8,940.3, reflecting the brief market stabilisation that followed reports of indirect US-Iran contact about potential negotiations.
The sectoral picture tells an important story for local investors:
- Energy stocks gained. Higher crude prices lifted ASX-listed oil and gas producers. Woodside and Santos saw share price tailwinds as Brent surged.
- Airlines suffered. Qantas and Virgin Australia faced a double hit: rising jet fuel costs and disrupted Middle East routes.
- Gold miners strengthened. COMEX gold surged past $5,362 per ounce in safe-haven demand, benefiting local producers including Newmont and Northern Star.
- Defence-adjacent names moved higher. Though Australia’s listed defence sector is thin, global defence ETFs and stocks with exposure surged.
- Consumer discretionary names came under pressure. Rising fuel costs amplify cost-of-living pressure and weigh on household spending expectations.
Australia’s relative resilience compared to Asian peers reflects a key structural advantage: the country exports energy rather than importing it. Higher oil prices hurt Australian consumers, but they improve the trade balance and support the resource sector.
Wall Street: Shock, Then a Strange Calm
US markets demonstrated their now-familiar pattern of initial panic followed by selective recovery. The Dow Jones tumbled more than 1,200 points intraday on Tuesday 3 March, then closed down just 355 points, or 0.73%, as dip buyers stepped in.
The pattern held through the week. Stocks bounced Wednesday on news of indirect Iran-US diplomatic contact, with the S&P 500 rising 0.78% and the Nasdaq gaining 1.29%. Then the sell-off resumed Thursday when WTI topped $80 per barrel and Iran struck an oil tanker, sending the Dow down another 784 points.
Goldman Sachs CEO David Solomon, speaking at the Australian Financial Review Business Summit, captured the mood with characteristic understatement.
Solomon described the market reaction as surprisingly benign given the scale of the conflict, though he cautioned that the real test would come if the conflict prolongs and starts filtering through to energy supply chains and consumer sentiment.
The bond market told a different, and more alarming, story. Typically, geopolitical conflict sends investors into Treasuries, pushing yields down. This time, the 10-year Treasury yield climbed from 3.97% to 4.10%, as investors priced in the inflationary risk of higher oil. The usual safe-haven playbook broke down entirely.
Asia Bears the Brunt
The most dramatic market moves of the week unfolded in North Asia, where energy import dependency creates acute vulnerability to any disruption of Gulf oil flows.
South Korea’s KOSPI index suffered the sharpest losses. After a public holiday on Monday kept Korean markets shut during the initial shock, the KOSPI plunged 7.24% on Tuesday. Its worst single session since April. Then the stock sank further 12% Wednesday, pushing the index to the brink of a technical bear market.
Japan’s Nikkei 225 fell 3.06% on Tuesday, extending losses for two consecutive sessions.
South Korea and Japan both rely heavily on LNG imports from the Middle East. The Strait of Hormuz closure was not an abstract geopolitical risk for these economies. It was an immediate supply chain emergency. Their market reactions reflected that exposure directly.
A sharp recovery did follow. The KOSPI staged a near 12% rebound on Thursday 5 March, on course for its best single day on record, as optimism about negotiations partially offset the earlier panic.
Inflation, the Fed and the Macro Trap
The conflict arrives at a particularly uncomfortable moment for central banks globally. The US Federal Reserve was already navigating a delicate path, tariff-induced inflation on one side, slowing growth on the other. Now it faces a potential second supply-side inflation shock from energy prices.
ING’s macro team put it bluntly, describing the timing as the worst possible moment. A prolonged conflict could see oil run toward $100 to $140 per barrel, European gas prices double or more, and inflation across Asia surge well beyond central bank targets, forcing tightening at exactly the moment growth is softening.
For Australia, the Reserve Bank of Australia faces a similarly uncomfortable dilemma. The RBA only recently began its easing cycle after a prolonged battle with domestic inflation. A sustained oil shock complicates that path significantly, potentially delaying further rate cuts and squeezing households already under mortgage stress.
History Says: Don’t Panic
Before investors reach for the sell button, history offers an important reality check.
As Minich MacGregor Wealth Management noted this week, geopolitical shocks tend to have surprisingly short-lived effects on markets. During the Cuban Missile Crisis, arguably the most dangerous 13 days in modern history, the Dow fell just 1.2%. By year-end 1962, it was up 10%.
Oxford Economics’ Alpine Macro division offered a concise framework for assessing the current conflict:
- The conflict likely lasts one to three weeks, with a maximum of two months.
- Oil, gas, out-of-region energy stocks, gold, and defence names will likely spike, but sell extreme moves, as they will fade.
- If GCC, East Asian or European assets fall sharply on war fears, buy the dip.
- The structural US equity narrative — AI, corporate profits, capital expenditure — remains intact and will reassert itself.
ICG reached a similar conclusion, maintaining that the base case is a relatively short-lived disruption with energy prices reverting to near pre-attack levels and limited medium-term macro impact, provided the Strait of Hormuz reopens in a timely fashion.
Also Read: Why the RBA Is Watching Iran: Economic Risks for Australia and Beyond
Also Read: Global Markets vs ASX: Conflict Impact on Coal & Defence Stocks
What Australian Investors Should Watch
For investors managing ASX portfolios, the near-term priorities are clear:
- Strait of Hormuz status. This single chokepoint determines whether this shock is a week-long event or a months-long recession catalyst. Any resumption of normal shipping flows will be the most important signal of stabilisation.
- Diplomatic signals. Trump’s reference to Iran wanting to negotiate, confirmed on Sunday, matters enormously. Every credible report of de-escalation provides a relief rally catalyst.
- Oil price trajectory. Below $90 Brent, the market can absorb the shock. A sustained move above $100 reshapes inflation and rate expectations materially.
- RBA guidance. Watch for any shift in the RBA’s language around energy price risks at upcoming meetings.
- AUD/USD movements. A stronger USD driven by safe-haven flows and inflation fears puts downward pressure on the Australian dollar, with mixed implications for exporters and importers.
Sources
- ABC News: https://www.abc.net.au/news/2026-03-06/asx-markets-business-live-news-march06-2026/106422840
- CNN Business: https://www.cnn.com/2026/03/04/investing/global-stocks-iran
- CNN: https://www.cnn.com/2026/03/03/investing/us-stocks-iran-turmoil
- CNBC: https://www.cnbc.com/2026/03/04/stock-market-today-live-updates-iran-war.html
- Al Jazeera: https://www.aljazeera.com/economy/2026/3/3/asias-stock-markets-plunge-amid-us-israeli-conflict-with-iran
- ING Think: https://think.ing.com/articles/war-in-the-middle-east-implications-for-markets-and-macro/
